Hollinger files lawsuit to block sale

The battle between Hollinger International, owner of The Daily Telegraph, and former chairman Lord Black escalated on Monday as Hollinger filed a lawsuit to prevent him selling his controlling stake in the company to the Barclay brothers, the prominent UK investors and publishers.

Hollinger also adopted a shareholder rights plan - known as a "poison pill" - which would dilute the Barclay brothers' shareholding if the deal does go ahead. The lawsuit begins: "This is an action to prevent a disloyal director and controlling shareholder of the company from manipulating the company's corporate machinery for his own selfish financial purposes."

Lord Black has agreed to sell to the Barclays for £260 million ($610 million) his 78 per cent stake in Hollinger Inc, which owns 30 per cent of the equity and 73 per cent of the votes in Hollinger International.

Accusing Lord Black of "breaches of fiduciary duty", the lawsuit also asks the court to declare "illegal" his attempts last week to change the by-laws of Hollinger. Lord Black sought to prevent the company from selling assets without his approval, at the same time as dissolving the corporate review committee set up to investigate his deal with the Barclays.

The lawsuit calls those moves "an act of such corporate irresponsibility it is difficult to believe any director of a public company would undertake it". It seeks to ensure that if the deal with the Barclays goes through, the "super-voting" rights through which Lord Black has controlled the Telegraph would be dissolved. If the court approves, Hollinger's corporate review committee will be reinstated and introduce the shareholder rights plan.

Under the scheme, if anyone gains control of more than 20 per cent of Hollinger's voting power without board approval, all other shareholders receive the right to buy 10 shares at a 50 per cent discount for every share they own. If all the shareholders took up their rights, the Barclays's holding would be diluted to 4 per cent of the equity and 20 per cent of the votes.

In November Lord Black signed an agreement with Hollinger to pay back certain "non-compete" fees while accepting the creation of a committee to examine the payments. Yesterday's lawsuit alleges that "the ink on the restructuring agreement was barely dry, however, when Black's facade of support for the strategic process began to fade and Black again pursued his own ends without consideration of his contractual or fiduciary responsibilities".

The Barclay brothers must launch their conditional offer by a deadline of today Australian time. A source close to the brothers said: "We are absolutely confident that our deal will go ahead as planned."